Causes of the Problem

McDonalds, quick service restaurants worldwide, had distinguished itself through its remarkable
consistency across all units. The Golden archesthe cororate emblem symboli!es leasant, fast
service and tasty ine"ensive food.
McDonalds success is attributed to its legendary oerating system, which is designed to ensure
consistency and uniformity across all outlets. McDonalds oerating system concentrated on four
areas# $mroving roduct% develoing outstanding sulier relationshis% imroving equiment
and training and monitoring the franchises.
Core Problem
McDonalds had generated an average annual return on equity of &'.&( from )*+' through
)**) and an average annual earnings growth of &,.)(. -owever en.oying tremendous growth
for /' years, sales er unit had slowed between )**0 and )**). $ts market share in 12, droed
from )3.4( in )*3' to )+.+( in )**) thus raising concerns for the management.
Causes of the problem
5nalysis of the roblem of falling growth rate ointed out following factors.
Limited menu options
McDonalds had achieved success by focusing on a simle formula# limited menu, low rice and
fast service. -owever with changing demograhy, growing cometition and new customer
desires, this limited menu has now aeared to be a limiting factor.
5t lunch and breakfast, customers are more concerned with seed and convenience but for
dinner customers e"ect full meal and comle" service. 6nly &0( of McDonalds sales come
from dinner. To entice customers for dinner required new menu.
6ffering variety of foods could disrut the oerating system built around a limited menu. This
may comromise consistency of food. The number of additional roducts could also detract from
the seed of service. $n addition increasing variety, oses ricing challenges from cometitors.
Changing Demography of customers
7hange of demograhy in 12, with more than &0 million eole between ages of ,0 and +0
years, has lead to growing trend of going to casual dining restaurants.
$n addition there is an increasing, yet variable concern for healthy food. -amburger consumtion
had droed from )*( of all restaurant orders in )*3& to )4( in )**0. 7onsumers are becoming
more conscious of nutrition and dietary otions without comromising taste.
To address concern about nutrition McDonalds introduced *)( fat free burger, Mclean.
Environment concerns
Growing concern for environment among consumers had affected the sales. 5 study showed that
'/( of articiants had declined to buy a roduct because they were worried about the effects
the roduct or its ackaging might have on the environment.
McDonalds was erceived by some as an environmental demon because all its roducts were
served in desosible containers.
McDonalds has acceted 8nvironment Defense 9und2 :8D9; suggestions in reducing the solid
waste. 30( of the chains solid waste was roduced behind the counters. ,&<stes waste
reduction lan included, introduction of reusable shiing containers, and other materials,
substantial ackaging changes, new and e"anded recycling efforts thus cutting the waste stream
by 30(.
Competitive challenge
$n addition to traditional rivals like =urger >ing, ?endys or >97, entry of secialist
cometitors who emulated McDonalds strategy to cature segments of the market. This has
made the cometition much tougher.
Two hamburger chains, 2onic and @allys offered drive through service only and seciali!ed in
delivering fast. $n )**) 2onic sales er unit increased to )/(.
Taco =ell featured Me"ican food with more than &+ items on the menu riced less than one
dollar. Aike McDonalds , Taco =ell shifted food rearation to outside suliers, reduced
kitchen sace at outlets and the rices were ket low. During )*33 to )**) Taco =ell served
+0( more customers and their sales increased to +/(.
5fter reviewing the causes of the core roblem, the ath of addressing these causes seems retty
clear, however it is not as easy as it looks. To address these causes and ultimately solve the core
roblem, McDonalds needed to revisit its strategy. McDonalds was one of the best comanies
with resect to customer ersective of its strategy, by focusing on oerational e"cellence
:Bacobs;. $ts rocesses were designed marvelously as its cycle time was less, its roductivity was
high. $n order to address the above mentioned causes of the core roblem the comany needed to
add variety in its menu and therefore move away from its strategy of keeing its menu limited.
2uch a move osed a threat to its e"isting oerations strategy which ensured e"istence of its
cometitive advantage through the seed, volume, quality, consistency and uniformity of its
roduct and service.